Opinion Part Five Final
III
NextWave argues that the Commission's cancellation of its
licenses violated sections 525, 1123, and 362 of the Bankrupt-
cy Code. Under the Administrative Procedure Act, we must
"hold unlawful and set aside agency action ... found to be
... not in accordance with law [or] ... in excess of statutory
jurisdiction, authority, or limitations." 5 U.S.C. s 706(2).
This provision requires us to invalidate agency action not only
if it conflicts with an agency's own statute, but also if it
conflicts with another federal law. See, e.g., Scheduled Air-
lines Traffic Offices, Inc. v. Dep't of Def., 87 F.3d 1356, 1361
(D.C. Cir. 1996) (applying 5 U.S.C. s 706(2)(A) and declaring
Department of Defense policy invalid under Miscellaneous
Receipts statute); see also Cousins v. Sec'y of the U.S. Dep't
of Transp., 880 F.2d 603, 608 (1st Cir. 1989) (stating that the
quoted passages from section 706 are "general in their mean-
ing" and "do not restrict the courts to consideration of the
agency's own enabling statute").
We begin with section 525:
[A] governmental unit may not deny, revoke, suspend, or
refuse to renew a license ... or other similar grant to,
... discriminate with respect to such a grant against,
deny employment to, terminate the employment of, or
discriminate with respect to employment against, a per-
son that is ... a bankrupt or a debtor under the Bank-
ruptcy Act ... solely because such bankrupt or debtor
... has not paid a debt that is dischargeable in the case
under this title or that was discharged under the Bank-
ruptcy Act.
11 U.S.C. s 525(a). No one disputes that the Commission is
a "governmental unit" that has "revoke[d]" a license for
purposes of section 525, nor that NextWave is a "bankrupt or
a debtor under the Bankruptcy Act." Pointing to the fact
that the Commission has filed proofs of claim in bankruptcy
court based on its security interests in PCS licenses, see, e.g.,
Proof of Claim, In re NextWave Pers. Communications, Inc.,
No. 98 B 21529 (Bankr. S.D.N.Y. Dec. 16, 1998) (filed on
behalf of creditor The United States of America), NextWave
argues that the installment payment obligations were dis-
chargeable debts under the Bankruptcy Code. See 11 U.S.C.
s 1141(d) (stating that dischargeable debts under Chapter 11
generally include "any debts that arose before the date of ...
confirmation" of the debtor's reorganization plan). And be-
cause failure to make installment payments was the "sole
triggering mechanism" for automatic cancellation, NextWave
continues, its licenses canceled "solely because" it failed to
pay dischargeable debts. Appellants' Reply Br. at 8.
The Commission never denies that if NextWave had made
its payments, the company could have retained its licenses.
Nor does the Commission dispute that NextWave's license fee
obligations were at least in part genuine, enforceable debts--
indeed, the Commission's own regulations provide for their
collection if left unpaid. See 47 C.F.R. s 1.2110(g)(4)(iv) ("A
licensee in the PCS C or F [B]locks shall be in default, its
license shall automatically cancel, and it will be subject to
debt collection procedures, if the payment due on the payment
resumption date ... is more than ninety (90) days delin-
quent.") (emphasis added). Instead, the Commission offers a
series of unpersuasive arguments intended to demonstrate
why, notwithstanding section 525's apparent applicability, the
provision does not bar cancellation of NextWave's licenses.
First, the Commission urges us to read section 525 in light
of section 362. The latter section, the Commission suggests,
"serves the important purpose of providing a debtor with
some breathing room in the situations to which it applies.
Accordingly, [section] 362 should be broader than [section]
525, providing for breathing room even in some situations
where cancellation ultimately would be permitted." Appel-
lee's Br. at 21-22. Thus, the Commission argues, because (on
its reading) the automatic stay does not apply to this case,
section 525 should not apply either. Fleshing out this argu-
ment, Intervenors suggest that "t would make little sense
for Congress to exempt governmental 'regulatory' actions
from the stay [under subsection 362(b)(4)] but then flatly
forbid them in [section] 525. Basic structural coherence
requires the conclusion that [section] 525 does not prevent a
license cancellation already correctly found exempt from the
stay as regulatory." Intervenors' Br. at 18.
This is an interesting argument, but it fails for several
reasons. To begin with, it is inconsistent with section 525's
plain language. Section 525 clearly and explicitly prohibits
governmental units, for whatever reason, from canceling li-
censes for failure to pay a dischargeable debt: "a governmen-
tal unit may not ... revoke ... a license ... to ... a
bankrupt ... solely because such bankrupt ... has not paid a
debt that is dischargeable ... under this title." 11 U.S.C.
s 525(a). Nothing in section 525 or 362 states that section
525 is subject to subsection 362(b)(4)'s regulatory power
exception, or that the exception should be read to limit
section 525's clear reach. Thus, while interpretation of the
Bankruptcy Code is a "holistic endeavor," and "[a] provision
that may seem ambiguous in isolation" can often be "clarified
by the remainder of the statutory scheme," United Sav. Ass'n
of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S.
365, 371 (1988), here we see no such ambiguity. Various
bankruptcy and district courts, accordingly, have held that
section 525 can apply even if the automatic stay does not.
See, e.g., William Tell II, Inc. v. Illinois Liquor Control
Comm'n (In re William Tell II, Inc.), 38 B.R. 327, 330 (N.D.
Ill. 1983) ("even if a state proceeding is not automatically
stayed, a bankruptcy court has authority to enjoin certain
conduct under 11 U.S.C. s 525"); In re The Bible Speaks, 69
B.R. 368, 373 n.5 (Bankr. D. Mass. 1987) ("[Section] 525(a) is
directed at governmental units and may apply even where the
automatic stay has no effect.").
Moreover, contrary to Intervenors' argument, this interpre-
tation of section 525 does not render the Code "structural[ly]
[in]coheren[t]." Though this reading does mean that an
action exempted under subsection 362(b)(4) might nonetheless
be barred by section 525, it does not render subsection
362(b)(4) meaningless, because that subsection covers a differ-
ent and wider variety of actions than section 525. For
example, subsection 362(b)(4) exempts from the automatic
stay (among other things) "any act" by a governmental unit
to "obtain possession of property of the estate ... or to
exercise control over property of the estate," so long as the
act is taken to enforce the unit's "regulatory power." 11
U.S.C. s 362(a)(3), (b)(4) (emphasis added). Section 525, in
contrast, prohibits governmental units only from taking cer-
tain specific actions with respect to an extremely limited
subset of a debtor's property--licenses and similar grants--
or with respect to employment opportunities.
Even if the Commission were correct that section 525
should be read to permit all actions exempted from the
automatic stay by subsection 362(b)(4), that argument would
be inapplicable to this case because subsection 362(b)(4) does
not apply to the stay of acts to "create, perfect, or enforce"
liens against property of the estate or of the debtor imposed
by subsections 362(a)(4) and (5). Here, NextWave executed
security agreements giving the Commission a "first lien" on
the company's interest in the licenses, and under subsections
362(a)(4) and (5), "a creditor holding a lien on property of the
estate may not enforce the lien by seizure, foreclosure, or
otherwise." 3 Collier on Bankruptcy p 362.03[6] (15th ed.
rev. 2000). Stayed actions include "self-help remedies against
collateral" such as "repossession." Id. p 362.03[6]. Before
the bankruptcy court, Commission counsel acknowledged that
canceling the licenses and seeking to collect on the debt was
"tantamount ... to foreclosing on collateral." Hearing Tr. at
14, In re NextWave Pers. Communications, Inc., No. 98 B
21529 (Bankr. S.D.N.Y. May 26, 1999). Thus, contrary to the
Commission's argument, and notwithstanding the applicability
of the regulatory power exception, section 362's automatic
stay does apply here. This is thus not a case in which section
525, if applicable, would bar an action exempt from the
automatic stay.
The Commission next argues that section 525 is inapplica-
ble because NextWave's license fee obligation was not a
"dischargeable" debt. In support of this proposition, the
Commission offers two arguments. First, it claims that the
New York bankruptcy court could not have discharged
NextWave's debt because the Second Circuit, whose decisions
are binding on that court, held in its initial opinion that so
long as NextWave retained its licenses, its payment obligation
was subject to neither modification nor discharge in bank-
ruptcy. As a result, the Commission concludes, the payment
obligation was not a debt "dischargeable" in bankruptcy while
the license was held.
We disagree. To begin with, it is unclear that the Second
Circuit in fact thought the bankruptcy court lacked power to
alter or discharge the payment obligation while NextWave
held the licenses. Though parts of its initial opinion do
suggest this, see In re NextWave, 200 F.3d at 56, other parts
suggest that the court simply thought the bankruptcy court
had no authority to require the Commission to allow
NextWave to keep its licenses after modification of its pay-
ment obligation. See, e.g., id. at 54 ("It is beyond the
jurisdiction of a court in a collateral proceeding to mandate
that a licensee be allowed to keep its license despite its failure
to meet the conditions to which the license is subject."). If
the latter reading is correct, then insofar as NextWave's
payment obligation was a debt (as opposed to a license
condition), it was dischargeable by the bankruptcy court.
Even if the Commission's reading of the Second Circuit's
opinion is correct, the Commission's argument assumes that
the phrase "debt that is dischargeable ... under this title" in
section 525(a) refers to the bankruptcy court's power to
modify or discharge a payment obligation. The provision's
plain language, however, refers to a payment obligation that
can be modified or discharged under the Bankruptcy Code;
and as we read the Second Circuit's opinion, the court merely
decided that insofar as timely payment was a condition for
license retention, the bankruptcy court had no authority to
modify it. It never decided that a court of competent juris-
diction (such as this one) could not modify or discharge it
under section 525.
The Commission also argues that because "[a] licensee's
full and timely payment of its winning bid installments is an
essential condition of its license grant[,] [p]ayment ... is a
regulatory requirement, not a dischargeable debt." Appel-
lee's Br. at 22. At oral argument, Commission counsel con-
ceded that the payment obligation also has the character of a
dischargeable debt. As we indicated earlier, the Commission
could seek to collect its license fee, and in so doing it would be
subject (as the Second Circuit held) to the constraints im-
posed on creditors by the Bankruptcy Code. See In re
NextWave, 200 F.3d at 56. But here, the Commission con-
tends, it seeks only to revoke NextWave's licenses, not to
collect on the debt, and insofar as timely payment is a
condition of license retention, it is a regulatory requirement,
not a dischargeable debt, and section 525 is inapplicable.
As Commission counsel also acknowledged, this claim
amounts to a request for a regulatory purpose exception to
section 525: the Commission in effect argues that because
(for legitimate regulatory motives) it made timely payment a
regulatory requirement, it should be permitted to cancel
licenses for failure to meet that requirement despite section
525's plain language ("a governmental unit may not ...
revoke ... a license ... to ... a bankrupt ... solely because
such bankrupt ... has not paid a debt that is dischargeable
... under this title"). But basic principles of statutory
interpretation preclude such a result. To begin with, section
525 contains several exceptions, but none for agencies fulfill-
ing regulatory purposes. See 11 U.S.C. s 525(a) ("Except as
provided in the Perishable Agricultural Commodities Act ...
the Packers and Stockyards Act ... and section 1 of ... 'An
Act making appropriations for the Department of Agriculture
for the fiscal year ending June 30, 1944, and for other
purposes' ... a governmental unit may not deny, revoke,
suspend ... a license...."). This in itself suggests that
Congress did not intend to provide a regulatory purpose
exception to section 525. See Tenn. Valley Auth. v. Hill, 437
U.S. 153, 188 (1978) (relying on fact that Endangered Species
Act "creates a number of limited 'hardship exemptions' " but
none for federal agencies to conclude "under the maxim
expressio unius est exclusio alterius ... that these were the
only 'hardship cases' Congress intended to exempt"). More-
over, other parts of the Bankruptcy Code contain explicit
regulatory purpose exceptions. Section 362, as we have seen,
exempts from certain provisions of the automatic stay any
"governmental unit" exercising its "police or regulatory pow-
er." 11 U.S.C. s 362(b)(4). Section 362 also contains a series
of narrower exceptions for certain named agencies that have
entered lending relationships, allowing them to engage in
particular acts of foreclosure and other actions. See, e.g., 11
U.S.C. s 362(b)(8) (exception permitting HUD Secretary to
foreclose on certain mortgages insured under the National
Housing Act). To us, these express exceptions demonstrate
that section 525 contains neither an implied regulatory power
exception for governmental units in general nor an implied
agency-specific exception allowing the Commission to enforce
an automatic cancellation policy pursuant to an installment
payment scheme under section 309(j) of the Communications
Act. See Russello v. United States, 464 U.S. 16, 23 (1983)
("Where Congress includes particular language in one section
of a statute but omits it in another section of the same Act, it
is generally presumed that Congress acts intentionally and
purposely in the disparate inclusion or exclusion.") (internal
quotation omitted).
Next, Intervenors argue that even if the license fee obli-
gation itself is a dischargeable debt, the Commission did not
cancel NextWave's licenses "solely because" of failure to pay
that debt. "The 'solely because' language," they argue, "lim-
its the bar on license revocation to circumstances where a
government [agency] is simply advancing creditor interests in
receiving the money due." Intervenors' Br. at 16-17. Since
here, license cancellation was intended not to induce payment
but instead to "protect[ ] the integrity of [the] auction[ ] and
select[ ] the applicant most likely to use the Licenses effi-
ciently for the benefit of the public," section 525 is not
implicated, because "it is not the 'debt' character of the
defaulted obligation that is the 'sole' basis for the cancella-
tion." Id. (internal quotation omitted).
We are unconvinced. Intervenors argue that "solely be-
cause" should be read to mean "solely because of creditor
interests in receiving the money due." But the statute says
nothing about an agency's motives in canceling a license for
failure to pay a dischargeable debt--it simply says govern-
mental units may not cancel licenses "solely because" a
debtor "has not paid" such a debt. See 11 U.S.C. s 525(a)
(emphasis added). It may be true, as the Second Circuit
decided, that the Commission had a regulatory motive for
examining NextWave's timely payment record and canceling
its licenses on that basis, but as we pointed out earlier,
neither the Commission nor Intervenors dispute that
NextWave could have retained its licenses if it had made
timely installment payments. NextWave's failure to make its
payments was thus the "sole" trigger of the license cancella-
tion, in the sense that the Commission looked to no other
factor in determining whether NextWave should retain its
licenses; and we think this is exactly the kind of conduct
barred by section 525's plain text. Adopting Intervenors'
intent-based reading of section 525 would allow governmental
units to escape section 525's limitations simply by invoking a
regulatory motive for their concern with timely payment, and
as we have already explained, section 525 contains no implicit
regulatory purpose exception.
To support their view that the phrase "solely because"
permits license cancellation based on failure to pay a dis-
chargeable debt so long as the cancellation is motivated by a
non-pecuniary regulatory purpose, Intervenors point to legis-
lative history stating that section 525 "does not prohibit
consideration of ... factors[ ] such as future financial respon-
sibility or ability ... if applied nondiscriminatorily," H.R.
Rep. No. 95-595, at 367 (1977), and that "in those cases where
the causes of the bankruptcy are intimately connected with
the license grant ... an examination into the circumstances
surrounding the bankruptcy will permit governmental units to
pursue appropriate regulatory policies and take appropriate
action without running afoul of bankruptcy policy." Id. at
165. But these passages do not lead us to conclude that
section 525 is inapplicable here. To begin with, we may not
"resort to legislative history to cloud a statutory text that is
clear." Ratzlaf v. United States, 510 U.S. 135, 147-48 (1994).
Moreover, while the quoted passages do suggest that agencies
may make regulatory decisions (including perhaps canceling
the licenses of bankrupt debtors) based on factors such as
future financial responsibility or ability, they do not state that
an agency may use timely payment of a dischargeable debt as
the sole indicator of such responsibility, as the Commission
has done here. Cf. H.R. Rep. No. 95-595, at 165 ("The
purpose of [section 525] is to prevent an automatic reaction
against an individual for availing himself of the protection of
the bankruptcy laws.").
Duffey v. Dollison, 734 F.2d 265 (6th Cir. 1984), which
Intervenors invoke, reinforces rather than undermines this
interpretation of section 525. In Duffey, the court upheld as
applied to a bankrupt debtor a state law suspending the
driver's license of anyone who failed to make timely payment
of a state tort judgment until that person provided proof of
future financial responsibility. The statute at issue there
specifically required extrinsic "evidence of financial responsi-
bility," such as a certificate of insurance or a bond, in order to
reinstate a license, and was specifically re-written not to
require payment of discharged debts as a precondition for
reinstatement: "the registrar shall vacate the order of sus-
pension upon proof that such judgment is stayed, or satisfied
in full ... and upon such person's filing ... evidence of
financial responsibility...." Id. at 269 (quoting Ohio Rev.
Code s 4509.45 (Baldwin 1975)). The Commission's automat-
ic cancellation policy, in contrast, refers to no analogous
extrinsic evidence of fitness to hold a license, and allows
license cancellation to rest solely on failure to pay a dis-
chargeable debt.
Finally, noting that section 525 is entitled "Protection
against discriminatory treatment," and that the House Report
on the bankruptcy bill provides that section 525 "extends only
to discrimination or other action based solely ... on the basis
of nonpayment of a debt discharged in the bankruptcy case,"
H.R. Rep. No. 95-595, at 366-67, the Commission suggests
that the provision is inapplicable here because "[a]ll licensees
lost their licenses if they failed to meet the payment dead-
line." Appellee's Br. at 23.
The text of section 525, however, includes "discriminat[ion]"
only as an item in a series of prohibited actions: "a govern-
mental unit may not deny, revoke, suspend, or refuse to
renew a license ... to, [or] condition such a grant to, [or]
discriminate with respect to such a grant against, [or] deny
employment to, [or] terminate the employment of, or discrim-
inate with respect to employment against[ ] a person that is
... a debtor under this title...." 11 U.S.C. s 525(a) (em-
phasis added). Another prohibited action in the series is (as
we have just seen) to "revoke" the license of a bankrupt
"solely because such bankrupt" has "not paid a debt dis-
chargeable" under the Bankruptcy Code--precisely what hap-
pened in this case. And the House Report itself explicitly
states that section 525 "extends only to discrimination or
other action based solely ... on the basis of nonpayment of a
debt discharged in the bankruptcy case...." H.R. Rep. No.
95-595, at 366-67 (emphasis added); see also Walker v. Wilde
(In re Walker), 927 F.2d 1138, 1142-43 (10th Cir. 1991)
(invalidating under section 525 a license cancellation policy
that applied to bankrupts and non-bankrupts alike).
We have no doubt that in developing its installment pay-
ment plan, the Commission made a good faith effort to
implement Congress's command to encourage small busi-
nesses with limited access to capital to participate in PCS
auctions. We are also mindful that, as the Commission
suggests, allowing NextWave to retain its licenses may be
"grossly unfair" to losing bidders and licensees who "complied
with the administrative process and forfeited licenses or made
timely payments despite their financial difficulties." Appel-
lee's Br. at 9. Any unfairness, however, was inherent in the
Commission's decision to employ a licensing scheme that left
its regulatory actions open to attack under Chapter 11 of the
Bankruptcy Code, the very purpose of which is "to permit
successful rehabilitation of debtors." NLRB v. Bildisco &
Bildisco, 465 U.S. 513, 527 (1984); see also H.R. Rep. No.
95-595, at 220 ("The purpose of a business reorganization
case, unlike a liquidation case, is to restructure a business's
finances so that it may continue to operate, provide its
employees with jobs, pay its creditors, and produce a return
for its stockholders."). The Code expressly contemplates that
bankrupts will sometimes avoid the consequences of late or
non-payment they might have faced had they not filed for
bankruptcy. See, e.g., 11 U.S.C. s 1123(a)(5)(G) (stating that
a reorganization plan may, among other options, provide for
"curing or waiving of any default"); United States v. Whiting
Pools, Inc., 462 U.S. 198, 204 (1983) ("The creditor with a
secured interest in property included in the estate must look
to [the provisions of the Bankruptcy Code] for protection,
rather than to the nonbankruptcy remedy of possession.").
And the Code's restrictions have been applied even to the
official actions of Government agencies. See, e.g., Whiting
Pools, 462 U.S. at 209 (enforcing the Bankruptcy Code
against the IRS to prevent seizure of property under a tax
lien and concluding that "[n]othing in the Bankruptcy Code or
its legislative history indicates that Congress intended a
special exception for the tax collector"). Here, as we have
explained, we think section 525 prevents the Commission,
whatever its motive, from canceling the licenses of winning
bidders who fail to make timely installment payments while in
Chapter 11.
We do not think this conclusion frustrates the purposes of
the Communications Act, because nothing in the Act required
the Commission to choose the licensing scheme at issue here.
Although section 309(j) suggests the possibility of using guar-
anteed installment payments of some kind, the statute also
suggests alternative methods of facilitating small business
participation. See 47 U.S.C. s 309(j)(4)(A). Indeed, in 1998,
the Commission decided that "until further notice, installment
payments should not be offered in auctions as a means of
financing small businesses and other designated entities seek-
ing to secure spectrum licenses." See Competitive Bidding
Proceeding, 63 Fed. Reg. 2315, 2318-19 (Jan. 15, 1998).
Moreover, irrespective of the Commission's decision to use
installment payments as part of its licensing scheme, nothing
in the Act required it to enter a creditor relationship with
winning bidders, take liens on licenses, or--most important
for our decision here--make timely payment a license condi-
tion. For example, the Commission could have required
winning bidders to obtain third party guarantees for their
license fee obligations, or required full upfront payment from
C Block licensees and helped them obtain loans from third
parties. The Commission could also have made license
grants conditional on periodic checks of financial health, a
more extensive credit check, or some other evidence that
winning bidders were capable of using their licenses in the
public interest. Having chosen instead a scheme that put it
in a creditor-debtor (and lienholder) relationship with its
licensees and conditioned licenses on timely payment of their
debts, and having as a consequence run afoul of section 525 of
the Bankruptcy Code, the Commission may not escape that
provision's clear command simply because it acted for a
regulatory purpose.
IV
In view of our conclusion that the Commission violated
section 525 of the Bankruptcy Code in canceling NextWave's
licenses, we need not consider NextWave's remaining Bank-
ruptcy Code arguments, nor its arguments that the cancella-
tion violated principles of due process and fair notice. We
therefore reverse and remand to the Commission for proceed-
ings not inconsistent with this opinion.
So ordered. |
